Delhi High Court
Ansal Landmark Township Pvt. Ltd vs M/S Big Brothers Projects Pvt. Ltd on 29 November, 2021
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision 29th November, 2021
+ CM(M) 1081/2021
ANSAL LANDMARK TOWNSHIP PVT. LTD ..... Petitioner
Through: Mr. Parveen Semwal, Advocate.
versus
BIG BROTHERS PROJECTS PVT. LTD ..... Respondent
Through: Mr. Rajesh Mahendru, Advocate.
CORAM:
HON'BLE MR. JUSTICE AMIT BANSAL
JUDGMENT
AMIT BANSAL, J. (Oral)
CM No.42517/2021(for exemption)
1. Allowed, subject to all just exceptions.
2. The application stands disposed of.
CM(M) 1081/2021 & CM No.42516/2021(for stay)
3. The present petition under Article 227 of the Constitution of India
impugns the order dated 6th October, 2021 passed by the District Judge
(Commercial Court)-02, Patiala House Courts, New Delhi (Commercial
Court) in a commercial suit bearing CS (COMM) No.165/2019, dismissing
the application filed on behalf of the petitioner (defendant no.2 in the suit)
under Order I Rule 10 of the Code of Civil Procedure, 1908 (CPC).
4. Brief facts as set out in the impugned order are set out below:
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By:MAMTA ARYA
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4.1 The respondent herein, was awarded the contract for plumbing
and sanitary works by the petitioner and the defendant no.1 with
respect to work orders starting from 14th November, 2011 to 26th
November, 2015.
4.2 Alleging default in payments as well as breach of terms of the
contract by the petitioner and the defendant no.1, the respondent filed
the commercial suit for recovery in 2019.
4.3 Upon the written statement in the suit being filed beyond a
period of 120 days, the defence of the petitioner and defendant no.1
was struck off by the Commercial Court vide order dated 29th January,
2021.
4.4 The application under Order I Rule 10 of the CPC filed by the
petitioner for deletion of its name from the array of parties in the suit,
was dismissed by the Commercial Court vide the impugned order.
5. Counsel appearing on behalf of the petitioner has submitted that; (i)
there are no allegations in the plaint against the petitioner except in
paragraph 20 of the plaint; (ii) there is no privity of contract between the
petitioner and the defendant no.1; (iii) the suit is not based on torts but is
based on an agreement entered into between the respondent and defendant
no.1; (iv) the petitioner and defendant no.1 are separate legal entities; (v)
corporate veil can only be lifted in public interest or in the case of tax fraud;
(vi) there are no specific averments made in the plaint in terms as required
under Order VI Rule 4 of the CPC with regard to the petitioner; and, (vii)
where no particulars are pleaded in the plaint, corporate veil may not be
pierced. Reliance is placed on the judgment dated 16th May, 2017 of the
Single Judge of this Court in OMP (COMM) No.22/2016 titled as Sudhir
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Gopi Vs. Indira Gandhi National Open University and Anr. in this regard.
Reliance has also been placed on the judgment dated 2nd July, 2014 while
deciding IA No.6063/2010 and IA No.2737/2014 in CS(OS) No.76/2010
titled as Kohli One Housing & Development Pvt. Ltd. Vs. C.S. Agarwal
and Ors. to contend that in case there is no privity of contract, then a party
may not be impleaded in a suit for recovery and unless there are specific
pleadings in this regard, the doctrine of lifting of corporate veil is not
applicable.
6. Counsel appearing on advance notice on behalf of the respondent has
contended that (i) in the present case the defence of both the defendants has
already been struck off; (ii) in terms of the proviso to Order VIII Rule 5 of
the CPC as applicable to commercial suits, every allegation or fact in the
plaint if not denied shall be taken to be admitted; (iii) since, the defence of
the petitioner has been struck off, all the averments made in the plaint
including paragraph 20 shall be deemed to be admitted; and (iv) after the
passing of the impugned order, an application under Order VII Rule 11 of
the CPC has also been filed by the defendants which is pending adjudication
before the Commercial Court.
7. Counsel appearing on behalf of the respondent has further submitted
that in the present case, the averments in the suit are not just premised on the
defendant no.1 being a subsidiary of the petitioner, but also on the ground
that the defendant no.1 has been acting as an agent of the petitioner. In this
regard reliance has been placed on the judgment of the Division Bench of
this Court in Bharat Starch Industries Ltd. Vs. Prudent International
Shipping and Trading Co. Ltd. 1995 (4) AD 343.
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By:MAMTA ARYA
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8. Next, it is contended on behalf of the counsel for the respondent that
there are well recognized exceptions to the Rule of Privity of Contract and
said exceptions are fully applicable in the facts and circumstances of the
present case. It has been specifically pleaded in the plaint that the petitioner
is the actual owner of the township that is being developed and defendant
no.1 is only acting at the behest of the petitioner. Reliance in this regard is
placed on the judgment of this Court in Utair Aviation Vs. Jagson Airlines
Limited and Anr. 2012 (129) DRJ 630. It is contended that unless the
petitioner is impleaded as a party in the suit, the respondent would be left
with a paper decree which would be impossible to execute against the
defendant no.1.
9. I have heard the rival contentions. It is clear from the reading of the
proviso to Order VIII Rule 5 of the CPC as applicable to commercial suits
that in the absence of a specific denial to the allegation made in the plaint,
the same has to be accepted. In this regard, reference may be made to
paragraph 20 of the plaint which has been relied upon by both parties and is
set out below:
"20. That the defendant No.1 and defendant No.2 both are jointly
and severally liable to make the payment of the suit amount as
the defendant No.1 is subsidiary of defendant No.2. The entire
equity of the defendant No.1 is owned/controlled by the
defendant no.2. The actual working control of the working of
defendant No.1 is with defendant No.2 and in fact the corporate
veil of defendant no.1 and No.2 are liable to be lifted as the
defendant No.2 is actually using name the defendant No.1 to
trade with other and even would make the defendant no.1 defunct
and usurp all assets of defendant No.1 to deny the recovery of
dues/claims of plaintiff. It is submitted that the defendant No.2
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company is the actual owner of the project where the plaintiff
was awarded the contract as the defendant No.2 is the actual
owner of the land and building of the housing project and
selling the flats after their completions, the name of defendant
No.1 is only being used to defraud public at large as such in lay
they are actually liable to make the payment of the suit amount
to the plaintiff. The defendant No.2 used to give all the
instruction and has entered into negotiations with plaintiff and
all the part payment made to the plaintiff have originated from
defendant No.2 only, the defendant no.1 of its own has no
source of funds or income or any ownership over the project.
Thus under these circumstances the corporate veil of the
defendant No.1 and defendant No.2 are required to be lifter as
in fact the defendant No.1 was worked simply as agent of the
defendant No.2 all the work orders were issued depicting the
defendant No.1 as subsidiary of defendant No.1 and using the
trade Mark/logo of 'ANSAL API'. The defendant No.1 & 2
both are the group companies of 'ANSAL API' therefore being
the owner of the land and building of the entire project for
which work was awarded to the plaintiff, the defendant No.2
alongwith defendant No.1 be held jointly and severally liable
for the monetary dues/claims/losses of the plaintiff in the
present suit."
10. A reading of the aforesaid paragraph makes it abundantly clear that
the suit is not just premised on the defendant no.1 being a subsidiary of the
petitioner or on the doctrine of lifting of corporate veil. It has specifically
been pleaded that the petitioner is the actual owner of the project, in respect
of which the respondent was awarded the contract. It has further been
pleaded that the petitioner has entered into negotiations with the respondent
and even the payments have originated from the petitioner. The doctrine of
agency has specifically been pleaded in the aforesaid paragraph by stating
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that the defendant no.1 was simply acting as an agent of the petitioner. In
light of the aforesaid averments made in paragraph 20, which are deemed to
be admitted on account of the petitioner having failed to file a written
statement, the petitioner cannot be deleted from array of parties by invoking
provisions of Order I Rule 10 of the CPC.
11. Counsel for the respondent has correctly placed reliance on the
judgment in Bharat Starch Industries supra. Paragraph 11 of the said
judgment is set out below:
"11. Before analysing the evidence, we shall briefly refer to
certain basic legal principles. The test of agency for the purpose
of Section 182 of the Contract Act is whether a person is
purporting to enter into a transaction on behalf of the principal
or not. In order to constitute an agency, it is not necessary to
have a formal agreement, (Babulal Swarupchand Shah vs. S. S.
(Fixed Delivery) Merchants, Assam (AIR 1960 Bombay 548)).
Under Sections 101 to 104 of the Evidence Act, if a person
claims to been agent of another, the burden of proof is on the
person so claiming. But at the same time under Section 109 of
the Evidence Act when the question is whether the persons are in
the relationship of principal and agent, and it had been shown
that they had been acting as such, the burden of proving that they
do not stand or have ceased to stand to each other in that
relationship, is on the person, who affirms it. Further where a
person allows another to hold himself out as agent of the former,
he will be bound by whatever agreement was entered into by
such an agent. (Walsh v.Griffith Jones (1978) 2 All E.R. 1002
(1007). Under Section 186 of the Contract Act the authority of an
agent may be expressed or implied. Section 187 of the Contract
Act states that an authorities said to be express when it is riven
by words spoken or written. An authority is said to be implied
when it is to be inferred from the circumstances of the case.
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Things spoken or words written or the ordinary course of
dealing, and circumstances of the case could be taken into
account for deciding whether there was agency. Further if a
person by words or conduct holds out another as having
authority to act on his behalf, he is bound as regards third
parties by the acts of such other as if he were his agent. (Union
of India v.Motilal (AIR 1962 A.P. 384). Shearson Iehama Bros.
Inc. v. Machine Watson and Co. Ltd. (No. 2) (1988) 1 W.L.R. 16
(28)(H.L.)."
12. The reference to the judgment in Utair Aviation supra by the
respondent is also apposite. Relevant paragraphs, 17, 19 and 21 are set out
below:
"17. It is well established principle of law that a party who is not
privy to the contract, cannot sue for enforcement of the said
contract and the said principle has been laid down by the
English courts from time to time which has been appreciated by
the Indian Courts with the well recognized exceptions. There are
number of exceptions which have been carved out by the courts
to the principle of privy to the contract ever since the said
principle was evolved by the English Courts. This is due to the
reason that the definition of consideration under Section
2(d) of the Indian Contract Act, 1872 is wide enough to
encompass a situation wherein contract is entered into between
the two parties and the consideration may or may not pass from
them and can pass from the third party.
xxx xxx xxx
19. It is clear from the aforementioned observations of Division
Bench of Calcutta High Court that the doctrine of privity of
contract although is applicable even in India but, the same has
been applied with well recognized exceptions and the court of
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equity like in India may not be strictly guided by the said dictum
of Twaddle v. Atkinson (supra) in order to defeat the claims of
the parties. This was the era to carve out the exceptions to the
principle of privity of contract which is that a stranger to a
contract cannot sue. From time to time, number of exceptions
has been evolved against the rule of privity of contract and
more than often quoted exceptions are that a person for whose
benefit the contract is entered into, can certainly sue as he is
beneficiary in the contract. Similarly, a person who is a trustee
of the third party can also sue likewise, even if he is a stranger
to a contract. These are not exhaustive exceptions and as seen
above from the observations of Division Bench that in a given
facts and circumstances.
xxx xxx xxx
21. There are other exceptions also which are equally
recognized to the said principle of privity to the contract and
reference is invited to the case of Jnan Chandra Mukherjee vs
Manoranjan Mitra And Ors., decided on 27 June, 1941 reported
as AIR 1942 Cal 251 wherein the Division Bench of Calcutta
High Court after analyzing the authorities on the aspect of
privity to the contract has observed:-
"3. So far as the first point is concerned, the law seems to
be fairly well settled. A stranger to a contract which
reserves a benefit for him cannot sue upon it either in
English or in Indian law even though in India the
consideration need not move from the promisee. There
are two well-recognised exceptions to this doctrine. The
first is where a contract between two parties is so framed
as to make one of them a trustee for a third; in such cases
the latter may sue to enforce the trust in his favour and
no objection can be taken to his being a stranger to the
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contract. The other exception covers those cases where
the promisor, between whom and the stranger no privity
exists, creates privity by his conduct and by
acknowledgment or otherwise constitutes himself an
agent of the third party." (Emphasis Supplied)"
13. The position in law that emerges from the reading of the aforesaid
judgment in Utair Aviation supra is that there are number of exceptions
carved out by the Court to the principle of Privity of Contract and one of the
said exceptions is that where there is no privity of contract, the stranger to
the contract creates his privity by constituting himself as an agent of the
third party. Whether the defendant no.1 was an agent of the petitioner or not
can only be established in the trial. At this stage, there are no valid grounds
for deletion of the name of the petitioner from the array of parties.
14. The judgment cited by the petitioner in Sudhir Gopi supra is not
applicable in the present case as the same was the judgment in a petition
filed under Section 34 of the Arbitration and Conciliation Act, 1996 after the
Award had been rendered by the Arbitrator and not in the context of Order I
Rule 10 of the CPC. Further, there is no discussion in the said judgment on
the question of agency as well as exceptions to privity of contract, which has
been pleaded in the present case. Similarly, judgment in Kohli One Housing
supra is not applicable to the facts of the present case as the said judgment
was passed while deciding an application under Order VII Rule 11 of the
CPC and also did not deal with the issue of agency as well as exceptions to
privity of contract.
15. The impugned order passed by the Commercial Court is a detailed
and well-reasoned order. Paragraph 17 of the said order which contains the
reasoning is set out below:
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By:MAMTA ARYA
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"17. Fact of the matter is suit for recovery of money was filed on
22/07/2019 with respect to alleged performed works with respect
to work orders starting from 14/11/2011 to 26/11/2015. It has
already been held by this Court on 29/01/2021 that it would be
one of the facet for plaintiff to prove that the claims were within
the limitation. It is also fact of the matter that the defence of
defendants was struck off for non filing of written statement
within permissible time period. The question relating to privity
having been created by virtue of conduct, acknowledgment and
admission becomes a mixed question of fact and law as it
requires a fact finding as well as due application of law.
Elicited averments of the plaint incorporate the allegations of
defendant no.1 to be subsidiary of defendant no.2; entire equity
of defendant no.1 is owned and controlled by defendant no.2; the
actual working control of the working of defendant no.1 is with
defendant no.2; defendant no.2 is actually using name of
defendant no.1 to trade with others to deny recovery of
dues/claims of plaintiff after usurping all assets of defendant no.1
in the backdrop of defendant no.2 company being the actual
owner of the project where plaintiff was awarded the contract
since defendant no.2 was actual owner of the land and building
of the housing project and selling the flats after their
completions. It is also the allegation of plaintiff that defendant
no.2 used to give all the instructions and entered into
negotiations with plaintiff and all the part payment made to
plaintiff have originated from defendant no.2 only, defendant
no.1 of its own having no source of funds or income or nay
ownership over the project. In this fact of the matter, no case is
made out by applicant/defendant no.2 that Court strikes out its
name as defendant being improperly joined, considering the
averments and allegations of plaintiff relating to privity having
been created by virtue of conduct, acknowledgement and
admission becoming a mixed question of fact and law that
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requires a fact finding as well as due application of law and it
cannot be said that the presence of defendant no.2 is not
necessary to effectually and completely adjudicate upon and
settle the questions involved in the suit."
16. There is no infirmity in the impugned order that warrants interference
of this Court in exercise of its jurisdiction under Article 227 of the
Constitution of India. It has been held by the Division Bench of this Court
(of which I was a member) in Black Diamond Trackparts Pvt. Ltd. and
Ors. Vs. Black Diamond Motors Pvt. Ltd. 2021 SCC OnLine Del 3946 that
jurisdiction under Article 227 of the Constitution of India has to be very
sparingly exercised in orders that are not appealable under the provisions of
Commercial Courts Act, 2015.
17. No grounds for interference are made out. Dismissed.
AMIT BANSAL, J
NOVEMBER 29, 2021
ak
Signature Not Verified
By:MAMTA ARYA
Signing Date:01.12.2021
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